Coca-Cola and PepsiCo proxy clash with activist investor over sugar hints at future skirmishes

Harrington Investments is locked in a battle with PepsiCo and Coca-Cola that would require the soda giants to be more transparent about the impact their sugary drinks have on public health. Now, it just needs to hope that enough of its fellow shareholders agree.

The small California investment firm is asking shareholders to vote on a measure requiring PepsiCo and Coca-Cola to provide the information through an independent report, with a focus on beverages marketed to children and young consumers. 

"We have to put continued pressure and chip away at them and show that we're not going away. This issue isn't going away," said Brianna Harrington, a research analyst and shareholder advocacy coordinator at Harrington Investments. "It's only going to become more and more relevant. It's only going to become more serious." 

The ongoing fight with PepsiCo and Coca-Cola could offer a glimpse into future skirmishes down the road where shareholders seek more influence in corporate America on issues covering everything from politics and diversity to health and the environment. 

In the past, investor success has been largely relegated to topics such as board makeup or executive compensation. But there are signs environmental and social issues are garnering more attention during the annual proxy season — and gaining momentum that could one day lead to more of them winning a majority of shareholder support.  

Harrington Investments, which focuses on socially responsible investing and shareholder rights, first introduced the sugar and public health proposal in Coca-Cola's annual proxy in 2019. Emboldened by what it viewed as its success there, it introduced a similar resolution a year later at PepsiCo and McDonald's. In 2020, 7% of Coca-Cola's shareholders voted in favor of the measure, up from 4.9% in 2019. The resolution at PepsiCo received the backing of 11% of shareholders in 2020. 

"Increasing the voting threshold — that is critical just to show that there is growing support for this issue and shareholders are becoming increasingly more concerned about the issue, especially with the pandemic," she said. 

Howard Berkenblit, a corporate and securities lawyer who oversees the capital-markets group at Sullivan & Worcester, said it's not uncommon for a lot of these types of shareholder proposals to get low support.

"That's why companies want to increase the thresholds [for a resolution] because it becomes ... an annoyance and a hassle for the company that it has to put this in their proxy statement every year and to have to tally up the votes and explain themselves," he said.